Bond Rout Pushes 80% of Global Market Above 4% Yields

The steepest global bond selloff in nearly two decades has turned fixed income into a buying opportunity, with over 80% of world debt now yielding above 4% and advisers urging investors to rebalance out of cash.

"People are getting used to phenomenal returns in stocks so they're likely overallocated to stocks, and the time to buy bonds is now to rebalance," said Allan Roth, a financial planner in Colorado Springs, Colo.

Japan's 10-year yield touched 3% for the first time since 1996, the U.K. 10-year Gilt climbed above 5.24% to its highest since 2008, and the U.S. 10-year Treasury yield rose to 4.79%. The average yield in a bond portfolio BlackRock tracks has more than doubled from five years earlier.

Individual investors still hold more than $3 trillion in money-market funds, and advisers say that cash, combined with heavy stock concentrations built up during the long bull market, leaves many portfolios underweight fixed income.

The Rebalancing Case

Bond returns are likely to beat inflation now, Roth said, and Treasury inflation-protected securities guarantee a real return today. Scott Boyles, a financial planner in Austin, Texas, said the primary mistake investors make is expecting bond prices to remain static; even with price swings, fixed income generates income, provides diversification and offers predictability for future cash needs.

"Bonds shouldn't necessarily be judged by whether they're green or red today," Boyles said. "They should be judged by whether they're doing the job they were purchased to do."

For retirees, bonds serve as a liquidity cushion during equity downturns. Chad Holmes, a financial planner in Fairhope, Ala., recommends holding at least three years' worth of withdrawals in bond funds or other stable assets, calling bonds "the war chest that you can use for distributions." James Mayo, a financial planner in Lakewood, Colo., builds bond ladders so clients get predictable cash back at maturity regardless of rate swings, while Cameron Willcox, a financial adviser in New York, favors short-duration bonds to damp portfolio volatility.

Paper Losses and Duration

Many investors who have held bonds since 2021 are sitting on paper losses after the Federal Reserve began raising rates in 2022. Willcox believes the worst of the price decline has likely passed, though he cautions that cutting duration locks out future price gains and leaves investors vulnerable to lower yields if rates fall. Andrew Van Alstyne, a financial planner in Waxhaw, N.C., said selling at a loss to chase higher rates can produce lower returns, since holding an individual bond to maturity still locks in its full principal and interest.

The selloff has been driven by a reassessment of Fed policy. Traders now price roughly a 70 percent chance the central bank raises rates at its September meeting, according to CME FedWatch, up from 40 percent a week ago, after renewed Middle East hostilities lifted Brent crude 2 percent to $92.20 a barrel and stoked inflation concerns. S&P 500 futures fell 0.6 percent as borrowing costs rose, and the yield on a Bloomberg index of global sovereign bonds climbed to its highest in almost two decades.

Treasury Secretary Scott Bessent has shrugged off the move, telling CNBC "the market is the market," after an expanded buyback program announced Aug. 19 failed to hold down long-dated yields, with 30-year Treasuries back at 5.27%.

This article is for informational purposes only and does not constitute investment advice.